Pharma vs. Med Tech Partnership Opportunities in China

“When I was preparing my speech I was worried that people may have some concerns about the Chinese market, so I was going to talk a lot about its potential. But after being here today, it seems nobody is really that worried about the future development of China's pharma market over the next 5 to 10 years; everyone is very optimistic about China’s future.

I have exactly the same view. I believe there are many opportunities in the Chinese market, especially because of the major reforms that have taken place in the past two years. The changes on the policy side led by the Chinese government are part of the reason; the other is that everyone is very clear that we will not be able to survive without reform. Therefore, I think it is no longer necessary to talk about the potential of the Chinese market. Instead, I want to spend more time talking about what these reforms will mean for the market in the next few years, as well as the investment opportunities in China.

I don't think this is solely an opportunity for investment; it is really an opportunity for business. What are the main changes that will result from these reforms? This morning, we heard from a friend who spoke about the Chinese pharma companies lagging behind in introducing their own new drugs. I would say there are many reasons for this problem, and we are now aware that it’s really necessary for us to speed up the innovation of new drugs and treatments.

First of all, the pharma companies in China are losing their profit margin due to policy changes and the institutional reforms in the Chinese market. However I think the core reason for the lower profit margin is that we cannot rely on the low-cost advantage any more. Today multinational companies enjoy a high profit margin because their medicines are patented. The Chinese government is also encouraging us to develop new medicines, and I think this may be a major threat for MNCs.

Second, regarding the innovation of new medicines; we know that in the past, the R&D investment in new medicines is very low in China, especially compared to that of foreign companies. Typically, if we have 10% investment in R&D it is already very high. But multinational companies have been investing for many years, in R&D and talents and training. Many Chinese companies want to do the same but they want to find some shortcuts. This is not possible in the pharma industry; you must invest both time and capital to develop your capability in this area.

The government has just issued some new requirements which will force the pharma companies in China to improve their quality control. At the same time, costs are also rising, so with the higher quality requirements, the profit margin becomes even smaller. The question is, under this pressure is it still possible to make money in China’s pharma market? I think yes, there are still opportunities.

Besides the pharma market, I also want to talk about med tech, which includes medical devices and intrusive diagnostics. For foreign investors in China, I think maybe there are more opportunities in the med tech market compared to the pharma market, because the med tech market lags further behind for some products. Med tech R&D seems easier, but if we analyse the development history of med tech equipment, we see that Chinese companies lag even further behind; the gap between Chinese companies and foreign companies in med tech is at least 3-4 times larger than in pharma. While I think there are more opportunities in this area, it will be difficult for a foreign med tech company that is small and less experienced in a large range of products to come to China directly, the better approach is to work with a Chinese partner. I can assure you, the med tech market in China is very promising.

I want to explore the pharma and med tech markets in more detail. For the pharma market, I want to draw your attention to two policies: MAH and ICH. What do these two policies mean? In the past, production and registration had to be combined but now they can be separated. This means that now when we do clinical trials, we are allowed to use the data from abroad. With these two new policies, Chinese pharma companies will have more opportunities in the global market; they will be able to leverage global resources more efficiently. So I’d like to remind you, especially our friends in Switzerland, that when research on new medicines is being done in the EU, during stage one and stage two you can begin trying to approach the Chinese partners. This way, when the medicine is ready, it can be launched in the Chinese market at the same time. This is a new policy that will shorten the time period for introducing a new medicine to the Chinese market.

I’d like to point out some particularly big opportunities. For example, China has a large population, accounting for 18-19% of the global population, yet our medicine market is quite small compared to our population. Today, we had a lot of discussion about the rapid rise in China’s aging population. What opportunities will emerge from this? There are many in the oncology market. Some may ask what the relationship is between oncology and ageing; it’s because it takes a long time for cancer to develop. The older you get, the more likely it is that you will have some sort of a cancer. We are not only talking about big cancer like breast and lung cancer, but also others. In China, the survival rate up to five years is much lower than that of other developing markets.

China’s large market and low cancer survival rate provides many opportunities. There are also chronic diseases such as cardiovascular disease, and diabetes. Keep in mind you should not only look at medicines directly related to these diseases, but look at other products as well. For example for diabetes, of course medicine is important, but diabetes will also cause other complications, including kidney and liver damage. So while you are thinking about diabetes, you should consider these other things. For example, there can be an insurance product that aims to prevent the occurrence of the complications of diabetes.

I also think the Chinese market is very interested in new therapies, for example cell therapy and immunology therapy. For the small molecule therapies, foreign companies have many years of experience, but for large molecule therapy and biotech, Chinese companies don’t really lag far behind their foreign counterparts. For example my company has found that there are more than 200 Chinese companies involved in these new therapies. In addition, in regenerative medicine, stem cell, genetic therapy and microbiological therapy, in all of these new areas you can find many Chinese companies who are also involved in the research in this area.

I said earlier that China lags behind in med tech. We find that in European markets there has been much progress in med tech development, especially on the clinical level. I think actually we can learn from European ideas and advances in this area. For example, non-invasive and minimally invasive surgery are not covered by the national insurance, so people are keen to find a good therapy which can provide the same result but at a lower cost. I think this can be achieved with more advanced med tech.

Next, I’d like to talk about diagnostics. When I spoke about cancer oncology, I said that the survival rate is only half that of other countries. I think 50% of the reason for this is the diagnostics, because in China cancer diagnoses are typically quite late.

I think there are some interesting products. For example, we can use a mobile phone as a hospital and there are also some diagnostic devices that people can use at home, or portable devices and also wearable devices. Of course, these areas are not mature yet because, for example, many of the wearable devices today are more like toys, but the potential is quite good.

That was my introduction about the Chinese market. Finally, I would like to talk about my company, Fosun Group. Actually, it’s a very famous company. Our chairman’s photo is hanging on the wall outside. My company is an investment group, but we don’t invest for the sake of investment. Fosun Pharma was established three years ago. We quickly became a public company with a listing on the Chinese stock market.

When we went public it was a very good opportunity for us, allowing us to develop very fast. We try to streamline our business so that the number one focus is on pharmaceuticals. We sold some non-core businesses to another company. Now our business is very focused on manufacturing and hospitals. Our manufacturing is focussed on pharmaceuticals, as well as med tech and diagnostic devices. This accounts for about 90% of our sales; another 10% of our revenue comes from hospitals.

We also have our own hospitals. Recently, Chinese President Xi Jinping has also spoken about encouraging investment in hospitals. Last year, we invested a lot in R&D. The R&D budget is more than 10% of our sales, which is quite rare among Chinese companies. The area we are interested in is antibodies and molecule therapy, and we also try to produce some biosimilars in China so that we can provide affordable medicines for Chinese people. We are also looking for opportunities to cooperate because we know we don't have the capabilities to do everything. So I want to talk about the internationalisation of my company.

For some, internationalisation means to sell products abroad, but it is not like that for us. In our development process, we don't have the time to build our capabilities from scratch, so we want to see how we can leverage global resources, for example through mergers and acquisitions, so that we can quickly increase our capabilities. This is the reason for our internationalisation; sometimes we don't have a competency within China, so we have to look for it abroad.”